http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/144121/index.do
Canada (National Revenue) v. 0741449 B.C. Ltd. (May 11, 2016 – 2016 FC 530, Hughes J.).
Précis: This decision deals with the rather rare jeopardy order provision found in subsection 164 (1.2) of the Income Tax Act (this is only the third reported decision on the provision). Subsection 164(1.2) permits the Minister, with the sanction of the Court, to retain taxpayer funds in her possession that would otherwise be payable to the taxpayer where a jeopardy situation is shown to exist. The Court found that the evidence disclosed both little, if any, other assets of the respondent corporation and a history of non-payment or bankruptcy on the part of the corporate principal. As a result the jeopardy orders sought were granted. The Minister was awarded costs set at $5,000.
Decision: The Minister sought jeopardy orders pursuant to subsection 164(1.2) of the Income Tax Act permitting her to retain funds of the taxpayer already in her custody:
[1] The Minister is seeking jeopardy orders under the provisions of subsection 164(1.2) of the Income Tax Act, RSC 1985, c 1, (5th Supp) permitting funds presently in the hands of the Minister to be retained, such funds having been paid by the Respondent in respect of tax owing until all appeals respecting the tax have been determined. For the reasons that follow, I will issue such an Order.
[2] The Respondent 0741449 B.C. Ltd. is a British Columbia corporation of which Mark Consiglio or his wife Nicola Consiglio is the sole director and shareholder. There are two applications in respect of this Respondent. The evidence and argument is common to both and both were heard together. Since those applications were filed, the Respondent has been amalgamated with another British Columbia corporation is also owned by one of both of the Consiglios. The resulting corporation continues under the name 0722955 B.C. Ltd.
The evidence of the financial condition of the respondent corporation was not favourable to its position opposing the order:
[6] The only asset of real value that could potentially be realized, is the Chute Lake property. The Minister’s evaluation places a market value of about $1.5 million on this property, the Respondent’s evaluation places a value of about $4.85 million as undeveloped property and about $7.15 million as developed property. The evidence is that there is an outstanding foreclosure Order of the British Columbia Court against this property; there is no evidence in the record as to whether that Order has been satisfied or otherwise resolved. The Respondent says that development plans respecting this property are underway but a letter from the Department Manager, Community Planning, City of Kelowna, in the record states that a Preliminary Layout Review (PRL) letter has been issued but that it could be revoked at any time and that, in any event if Consiglio were still to be involved, he would not approve a subdivision application. There is also a suggestion in the evidence that a sale of the Chute property may be pending.
[7] The evidence also shows that Mr. Consiglio has been involved in a number of business ventures in the past, many of which have failed to pay taxes or gone bankrupt.
The small amount of prior jurisprudence on the provision supported the position of the Minister:
[10] Justice Blanchard in Chabot established that in order for a Judge to be satisfied that there are “reasonable grounds to believe” that the collection of tax would be jeopardized, the Court must assess the taxpayers net worth and ability to satisfy the tax debt independently of the refund at issue. Factors such as unorthodox behaviour of the taxpayer and evidence regarding potential dissipation of assets by the taxpayer may be considered. …
As a result the Court granted the orders sought:
[11] In this case, I am satisfied that there are reasonable grounds to believe that the funds now in the hands of the Minister would likely be jeopardized if returned to the Respondent. The only real asset is the Chute Lake property; it is heavily mortgaged and subject to a foreclosure order. There is a suggestion that a sale may be imminent. Approval of a subdivision plan is tentative and may not ever occur. The principal of the Respondent, Consiglio, or the companies with which he is associated, has a history of non-payment of taxes and bankruptcy. All of this makes it reasonable for this Court to conclude that funds in the hands of the Minister may well be in jeopardy if returned to the taxpayer.
[12] Counsel for the Respondent points out that the last few words of subsection 164(1.2) gives the Court a discretion to make “such other order as the judge considers reasonable in the circumstances.” Counsel suggests that an Order be made that a portion of the funds in the hands of the Minister be paid to the City of Kelowna to cover subdivision approval fees and that the balance be secured by a mortgage or other charge on the Chute Lake property.
[13] I will decline to make such an Order as it will, in effect, be making the Minister a business partner of the taxpayer in a somewhat risky venture. There are already several mortgages on the property and it is by no means clear as to whether the Respondent still owns the property.
Costs were awarded to the Minister fixed at $5,000.